How chips stack up

Chipmakers moving forward are going to have to do the impossible: offer ever-more-powerful, ever-less-expensive processors--but improve their balance sheets at the same time.

Advanced RISC Machines (ARM) and MIPS, two "fabless" chip companies, are
two of the processor firms that come up most often in discussions about convergence. Fabless means these companies have no in-house production facilities, but rather farm out manufacturing.

While their respective chips get high marks, their low-cost fabless
business model finds admirers as well.

Both companies make money by licensing their chip designs to
third parties. Though there is a downside to fabless models in some cases--lack of control over how
the chips are actually made in the production process--costs remain low because the third parties absorb the costs related to the actual manufacturing process.

LSI's device processors, which are found in Sony's PlayStation, come from a MIPS design, and WebTV boxes also use architecture from the company. MIPS was spun out of Silicon Graphics earlier this year.

ARM got a recent boost with Intel's decision to more aggressively market the StrongARM design it acquired from Digital Equipment.

After months of silence and apparent ambivalence, Intel chief executive Craig Barrett said the giant would use the chip for low-end set-top boxes, handhelds, and other consumer devices.

But companies such as Hitachi and MIPS so far are ahead of Intel. Hitachi has racked up a number of customer
wins and has picked up some momentum with its software development platform
for its popular SH series of chips.

Also, Hitachi--unlike MIPS and ARM--makes its own chips, so it has complete control and can push forward new, high-performance designs aggressively, much like Intel has done in the PC industry. But the common theme for these business strategies is selling high-performance chips inexpensively.

Less complex designs
make this possible. "The [chips'] size is
smaller and there are fewer [manufacturing] steps," said Nathan Brookwood, an independent processor analyst.

"A PC microprocessor has to be a lot of things to a lot of people. It has to be a word processing machine, a presentation machine," and many other
things, Brookwood said.

Intel-based chips are also more expensive.
"You are not over a Wintel
barrel" with other manufacturers, he added, implying that intellectual
property and market domination allow the team to price their products
higher than they would otherwise.

Nonetheless, Intel is trying to fit its Celeron processor into
the upper echelon of the set-top market, said Greg Adkin, marketing manager for the appliance and computing division at Intel. Machines running DVD drives or those made to run games compatible with PCs will use Celeron processors, he predicted.

Increased data bandwidth into the home, manifested in high-speed devices
such as cable modems, will favor the more PC-centric chips, he said. This
means more TV-based Web surfing. In turn, this will lead to more TV users
tripping across PC-centric applications. As a result, consumers will want
to have a box that functions on the same standards as a desktop, he
theorized.

"As digital broadband gets rolled out, you will see a variety of devices,"
Adkin said. "A platform will emerge in the family room on top of the TV.
You will see a range of products, from $300 or less to $799, $999, and $1,299."

The rise of digital TV also will help because a
computing device will be
needed to sort out TV signals from data streams from the Internet. "You
need a computer to understand and display this," he said.

Other processor vendors that are expected to get deeper into this market
are National Semiconductor and Sun Microsystems. National has already released a series
of integrated processors that have appeared in computers costing $499 and
less.

These boxes will only get cheaper, said Steve Tobak, vice president
of sales and marketing at National Semiconductor. One aspect that will help these other
vendors is that the brand of the processor will fade in importance as
commoditization grows.

Sun, meanwhile, will license embedded chip designs built around the
UltraSparc II to manufacturers such as Fujitsu, said Anant Agrawal, vice
president of
engineering in Sun's microelectronics division.

In addition to processor companies, designers of communications chips and
graphics chips should get a boost in the market because of the emphasis on
sensory presentation over sheer computing power. Communications vendor Broadcom recently won a contract with SA
while graphics upstart Artx snagged a graphics contract to supply chips to
the next generation of Nintendo games.